(Yicai) Jan. 9 -- As Chinese raw milk prices failed to recover before the high season, industry professionals worry that this year will become the weakest for dairy farmers in the past two decades.

This year will be harder than last year, and maybe even the hardest in the past two decades, so operating farms with a lot of debt will become difficult, Song Huiting, chairman at Jiangsu province-based Jiahui Biotech, told Yicai. 

Even though prices of raw milk usually peak at the beginning of the year, reference prices in some areas have dropped to the lowest level in the past six years, insiders added.

Prices of raw and fresh dairy averaged CNY3.66 (50 US cents) per kilogram in the last week of December in the Inner Mongolia Autonomous Region, Hebei province, and eight other major milk-producing regions, down 11 percent from a year ago, according to the latest data from China’s Ministry of Agriculture and Rural Affairs.

A dairy farmer in Hebei said that a government-backed industrial organization shared during a meeting that the reference price is expected to be CNY3.6 per kg in the first quarter, and not only is it about 12 percent lower than the price of a year ago, but it also is quite close to the price seen during the first quarter of 2018, the bottom of the industry’s latest boom and bust cycle.

Fortunately, prices of animal feed such as corn and soybean meal fell from a year earlier, the farmer said, adding that this helped his ranch to still break even.

Farms nationwide got rid of about one million cows during the current glut, Song Liang, an independent dairy sector analyst, told Yicai. But the supply is still excessive. The average milk output of a single cow is rising, which has partly compensated for the reduced inventory while the market demand remains insufficient.

The price drop has started to take a toll even on large ranches that tend to be more financially stable than their smaller peers, an owner of a large farm in Hebei said to Yicai. His ranch culled low-performing cows and started sourcing animal feed locally to cut costs to survive. 

The farm owner also considers selling certain parts of his business to dairy processors in order to form closer partnerships with clients to guarantee orders at acceptable prices during difficult times.

Editors: Tang Shihua, Emmi Laine